Summary: In contrast to emerging real economy destruction, the week begins on a positive note, as COVID-19 case growth appear to be slowing in most developed world countries. At the time of writing US futures are making a beeline for limit up and Asian indices firmly green, ASX 200 +4.33%, Nikkei 225 +4.44%, KOSPI +3.75%, Hang Seng +2.29%.
Italy, the new hotspot Spain and the UK have all reported a decline in the daily death toll, from a humanitarian perspective this is great news. President Trump also appears to have dialled back the severity of his warning, at the latest COVID-19 White House presser stated the outbreak was perhaps “levelling off”. "We see light at the end of the tunnel. Things are happening," Trump said, however we would still caution that the road ahead (or tunnel) is long and winding. A levelling off of cases could be more akin to the end of the beginning, rather than the beginning of the end as the real economy effects play out.
When it comes to the real economy effects and second order impacts of the COVID-19 containment measures, these show no sign of levelling off making the days exuberance look rife with complacency. This as Japan moves to declare a state of emergency April 7, Singapore locks down once again and pockets of emerging markets stresses show little sign of abating. The pressure of dollar strength and funding squeeze continues, although swapped lines have helped and dollar borrowing premiums have lessened. The sharp devaluation across multiple EM currencies may eventuate unintended economic dislocations that have capacity to spark risk whilst sentiment remains fragile. Flexible exchange rates will absorb the economic shock to a point before presenting secondary consequences.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
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